The Pros and Cons of Technical Debt

Financial debt can be a valuable tool for growing a business — companies commonly use loans or lines of credit to buy new equipment, reach new markets or expand operations. But too much debt can throttle cash flow and put your business at risk.

Similarly, “technical debt” can produce both positive and negative effects for businesses.

Technical debt is a metaphor commonly used by software developers in reference to short-term compromises during the development process. You make acceptable tradeoffs in function, features or quality in order to deliver the software faster. The idea is that the “debt” — the future costs that will be required to refine or re-engineer the software — will be more than offset through faster time to market and immediate competitive advantages.

Technical debt is not exclusive to software development, however. It can be found throughout the technology stack. Companies also incur technical debt when they choose to put off upgrading hardware, storage or operating systems in order to preserve capital.

Like financial debt, technical debt involves both principal and interest. The principal would be the eventual cost of fixing problems. The ongoing inefficiencies caused by those problems, including increased maintenance, poor resource allocation and complicated processes, would be a form of compounding interest.

And as with financial debt, it is the interest payments that can be a killer. When organizations delay making necessary fixes and let their technical debt get out of control, they can wind up using most of their budget and manpower on those interest obligations rather than on innovation and development that could move the company forward. According to Forrester Research, maintaining older applications and technology typically consumes 70 percent or more of the technology budget.

The longer the debt is ignored, the more vulnerable companies become. According to a recent IDG survey of global IT executives, organizations that fail to properly assess, track and manage their technical debt experience a range of negative business impacts, including higher operational expenses (55 percent), reduced performance and scalability (47 percent), longer time to market (35 percent) and customer experience issues (17 percent).

Mounting technical debt also limits a company’s ability to launch digital transformation and modernization efforts. According to an Accenture survey of more than 1,000 C-level executives, a significant majority say technical debt severely limits their ability to innovate (70 percent), slows migration to new technologies (72 percent), and makes them less responsive to market changes (69 percent).

Like financial debt, technical debt is not inherently bad. In fact, you could argue that it is absolutely essential for business growth. However, just like financial debt, it gets more expensive the longer you have it. The key to avoiding pitfalls is to address technical debt from the beginning stages of any IT project. That means identifying where and why compromises may be necessary and establishing a detailed timeline for correcting those issues and paying down your debt.